Alex Docherty

Nothing in the Budget was aimed specifically at law firms. Whether a firm is a traditional Scottish partnership or an LLP, its partners are taxed as individuals rather than as a company, and those powers on earnings rest with Holyrood.

The same goes for rental income. Landlords in England, Wales and Northern Ireland will pay four per cent more on property income from April 2027, but Scottish partners with let property are spared – for now. Holyrood will receive an extra £600m through the Barnett formula and has a choice to make in December.

Much of the rest applies on both sides of the border. Tax on savings income rises by four per cent across the UK (including Scotland) from April 2027, so partners with significant interest income may wish to review how the funds are invested.

Changes to investment reliefs are a mixed bag. The chancellor pointed to the 25 per cent cap on corporation tax and full expensing as the bedrock of business stability, but neither helps partnerships, because full expensing is only available to companies and most law firms are structured as partnerships.

What will be significant for firms is a cut in the main writing down allowance from 14 per cent to 12 per cent from April 2027, which slows relief on the systems, fit-outs and equipment already in their capital allowance pools. While a lot of capital spend will qualify for 100 per cent upfront relief via the Annual Investment Allowance, larger firms or firms undertaking a large fit-out may face reduced relief.

On the other hand, the government will increase a different Capital Allowances Relief (First Year Allowance) from 40 per cent to 50 per cent for spend from 1 January 2027. Firms planning significant capital expenditure should discuss with their advisors at an early stage to ensure that relief can be maximised.

Then there is cashflow. From April 2029, partners making self-assessment payments on account will pay smaller, more regular amounts through the year instead of two large instalments. That changes how firms manage drawings and tax retentions, but HMRC have yet to publish details of how the new system will work.

For partners looking to sell their business interest (on retirement or otherwise), the change to Business Asset Disposal Relief will be significant. From 6 April 2027, the lifetime limit on gains taxed at 18 per cent is cut from £1m to £500,000, reducing the maximum saving from £60,000 to £30,000. The new Founders’ Relief, at 10 per cent on up to £10m, is reserved for high-growth, innovative companies, and a traditional law firm is unlikely to qualify.

As employers, firms face a National Living Wage of £13.21 an hour from April 2027 and a UK-wide pledge to stop non-compete clauses in employment contracts holding back people who want to move jobs. Finance teams face mandatory VAT e-invoicing and direct debits for VAT and PAYE from April 2029.

Taken together, the Budget did not have any big tax rises on law firms, but it will impact partners’ cashflow, provide less capital gains tax relief on exit, and add more administration. For Scottish partners, the rest of the story arrives on 3 December.

Alex Docherty is a partner at Johnston Carmichael